Testing twin deficits hypothesis using VARs and Variance decomposition
This paper examines the twin deficits hypothesis in the ASEAN countries. The major findings of this paper are the following. (1) Long run relationships are detected between budget and current account deficits. (2) The Keynesian view fits well for Thailand since the causality runs from budget deficit...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English English |
| Published: |
2006
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| Online Access: | http://psasir.upm.edu.my/id/eprint/18281/ http://psasir.upm.edu.my/id/eprint/18281/1/Testing%20twin%20deficits%20hypothesis%20using%20VARs%20and%20Variance%20decomposition.pdf |
| _version_ | 1848843470126448640 |
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| author | Baharumshah, Ahmad Zubaidi Lau, Evan Khalid, Ahmed M. |
| author_facet | Baharumshah, Ahmad Zubaidi Lau, Evan Khalid, Ahmed M. |
| author_sort | Baharumshah, Ahmad Zubaidi |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | This paper examines the twin deficits hypothesis in the ASEAN countries. The major findings of this paper are the following. (1) Long run relationships are detected between budget and current account deficits. (2) The Keynesian view fits well for Thailand since the causality runs from budget deficit to current account deficit. For Indonesia, the causality runs in an opposite direction while the empirical results indicate that a bidirectional pattern of causality exists for Malaysia and the Philippines. (3) We also found support for an indirect causal relationship that runs from budget deficit to higher interest rates, and higher interest rates leading to the appreciation of the exchange rate, which in turn leads with the widening of the current account deficit. The results of the variance decompositions and impulse response functions suggest that the consequences of large budget and current account deficits become noticeable only over the long run. |
| first_indexed | 2025-11-15T08:15:32Z |
| format | Article |
| id | upm-18281 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English English |
| last_indexed | 2025-11-15T08:15:32Z |
| publishDate | 2006 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-182812015-09-07T04:41:05Z http://psasir.upm.edu.my/id/eprint/18281/ Testing twin deficits hypothesis using VARs and Variance decomposition Baharumshah, Ahmad Zubaidi Lau, Evan Khalid, Ahmed M. This paper examines the twin deficits hypothesis in the ASEAN countries. The major findings of this paper are the following. (1) Long run relationships are detected between budget and current account deficits. (2) The Keynesian view fits well for Thailand since the causality runs from budget deficit to current account deficit. For Indonesia, the causality runs in an opposite direction while the empirical results indicate that a bidirectional pattern of causality exists for Malaysia and the Philippines. (3) We also found support for an indirect causal relationship that runs from budget deficit to higher interest rates, and higher interest rates leading to the appreciation of the exchange rate, which in turn leads with the widening of the current account deficit. The results of the variance decompositions and impulse response functions suggest that the consequences of large budget and current account deficits become noticeable only over the long run. 2006-08 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/18281/1/Testing%20twin%20deficits%20hypothesis%20using%20VARs%20and%20Variance%20decomposition.pdf Baharumshah, Ahmad Zubaidi and Lau, Evan and Khalid, Ahmed M. (2006) Testing twin deficits hypothesis using VARs and Variance decomposition. Journal of the Asia Pacific Economy, 11 (3). pp. 331-624. ISSN 1354-7860 http://dx.doi.org/10.1080/13547860600764245 Budget deficits - Southeast Asia Deficit financing - Southeast Asia Cointegration - Southeast Asia doi:10.1080/13547860600764245 English |
| spellingShingle | Budget deficits - Southeast Asia Deficit financing - Southeast Asia Cointegration - Southeast Asia Baharumshah, Ahmad Zubaidi Lau, Evan Khalid, Ahmed M. Testing twin deficits hypothesis using VARs and Variance decomposition |
| title | Testing twin deficits hypothesis using VARs and Variance decomposition |
| title_full | Testing twin deficits hypothesis using VARs and Variance decomposition |
| title_fullStr | Testing twin deficits hypothesis using VARs and Variance decomposition |
| title_full_unstemmed | Testing twin deficits hypothesis using VARs and Variance decomposition |
| title_short | Testing twin deficits hypothesis using VARs and Variance decomposition |
| title_sort | testing twin deficits hypothesis using vars and variance decomposition |
| topic | Budget deficits - Southeast Asia Deficit financing - Southeast Asia Cointegration - Southeast Asia |
| url | http://psasir.upm.edu.my/id/eprint/18281/ http://psasir.upm.edu.my/id/eprint/18281/ http://psasir.upm.edu.my/id/eprint/18281/ http://psasir.upm.edu.my/id/eprint/18281/1/Testing%20twin%20deficits%20hypothesis%20using%20VARs%20and%20Variance%20decomposition.pdf |